Hotels, cafes may be put under excise regime from next year

The Federal Board of Revenue (FBR) has decided to withdraw sales tax from hotels and restaurants, from next financial year, for bringing them under federal excise regime. Sources told Business Recorder on Wednesday that the decision had been taken in the last collectors of sales tax conference.
It has been decided that hotels and restaurants may be brought under excise cover, instead of sales tax. This measure may be taken in the next budget, the FBR added. According to sources, there were reports that hotels and restaurants were paying less amount of sales tax as compared to their actual tax liability. After calculation of input/output ratio, the actual sales tax liability, paid by the hotels came to around 1-2 percent, instead of standard 16 percent sales tax. On the other hand, hotels and restaurants were claiming higher amount of input tax adjustments.
As compared to input tax, they show more output tax, resulting in less sales tax liability. It has been observed that hotels and restaurants have more opportunity to evade sales tax, due to availability of input tax adjustment.
Sources said that the hotels and restaurants may not claim input tax adjustment in the federal excise regime. Within the excise regime, the facility of input tax adjustment is not available. Therefore, this misuse could be ended through change in the law.They said that there was a possibility to levy fixed amount of excise duty on hotels and restaurants. However, so far no rate has been determined for levying excise duty on hotels, etc.
The FBR Sales Tax Wing would analyse the proposal during the remaining months of the current fiscal year. If the proposal is finalised, it would be incorporated in the next budget. For this purpose, amendment would be required in the Federal Excise Act.